Kentucky Fannie Mae Guideline Updates On Student Loan

Fannie Mae Updates Selling Guide

Fannie Mae has announced updates to the April Selling Guide (SEL-2017-04) to include the following.  All changes but one; noted below, are effective immediately.
Student Loan Payment Calculation
  • If a payment amount is provided on the credit report, that amount can be used for qualifying purposes.
  • Note: we have confirmed with Fannie Mae that this will include income based repayment options reporting to credit that are not fully amortizing.
  • If the credit report does not identify a payment amount (or reflects $0), we can use either 1% of the outstanding student loan balance, or a calculated payment that will fully amortize the loan based on the documented loan repayment terms.
  • Note: The DU messaging when an installment debt on the loan application does not include a monthly payment will be updated in a future release to reflect this new policy. Until then, we may disregard the statement in the message specifying the previous policy and follow the new policy.
 Debts Paid by Others
  • Requirements will be simplified for excluding non-mortgage debts from the debt-to-income ratio.
  • Non-mortgage debts include debt such as installment loans, student loans, and other monthly debts as defined in the Guide.
  • If documentation is obtained that a non-mortgage debt has been satisfactorily paid by another party for the past 12 months, then the debt can be excluded from the debt-to-income ratio.
  • This policy applies regardless of whether the other party is obligated on the debt.
  • Note: The DU message on omitted debts will require documentation to support the omission of the debt, but will not reference the documentation requirements specified as DU is not able to identify if the debt was omitted as a result of the new policy.
  • This policy does not apply if the other party is an interested party to the subject   transaction (such as the seller or realtor).
Fannie Mae Student Loan Cash-out Refinance Features
LLPA is waived for loans that meet the student loan cash-out refinance requirements.
Requirements Shown are New or Aligns with C/O or LCO Guidelines
Student Loans Eligible for Payoff
  • At least one student loan must be paid off. Loan proceeds must be paid directly to the student loan servicer at closing.
  • Only student loans for which the borrower is personally obligated can be paid through the  transaction.
  • Student loan debt must be paid in full with the proceeds – partial payments of student loan debt are not permitted.
New Policy
The standard cash-out refinance LTV, CLTV, and HCLTV ratios apply per the Eligibility Matrix.Max is 80%
Aligns with cash-out refinance
Underwriting Method
DU only
New policy
Maximum Cash Back
Lesser of 2% or $2k (over and above the student loan payoff)
Aligns with limited cash-out refinance
Mortgage Payoff
1st mortgage and purchase-money seconds
Aligns with limited cash-out refinance
Other Requirements
  • Property cannot be listed for sale at time of disbursement
  • Payoff of taxes ineligible unless escrow account is established
  • Payoff of delinquent taxes ineligible
Aligns with limited cash-out refinance